Philippines Struggles to Attract FDI Amid Shifting Supply Chains

Nomura’s recent report highlights the Philippines‘ struggle to attract foreign direct investment (FDI) amidst the ongoing shift in supply chains away from China. Despite being among the fastest-growing economies in the region with favourable demographics and reform prospects, the Philippines lags behind its Asian counterparts in becoming a preferred destination for global companies seeking new production bases.

According to Nomura, Vietnam and Thailand emerge as the frontrunners among the “new flock of Asian geese,” benefiting from the relocation of supply chains. However, the Philippines and Indonesia do not appear to be the top choice for global companies, partly due to barriers in the local manufacturing sector and geopolitical tensions with China.

Nomura highlights the Philippines’ inability to significantly benefit from supply chain relocations, particularly in the electronics sector, despite it constituting nearly 60% of total exports. Challenges in the manufacturing sector, including high power rates and poor infrastructure connectivity, contribute to the country’s struggles in attracting FDI.

Moreover, ongoing geopolitical tensions in the South China Sea hinder the inflow of Chinese investments into the Philippines. Nomura emphasises the need to address broader issues in the manufacturing sector, including infrastructure development and cost reduction, to improve the country’s investment attractiveness.

However, Nomura identifies some limited investment opportunities in the Philippines, particularly in industrial parks and the nickel industry. Companies like Ayala Land could benefit from increased commitments from Chinese firms for industrial park development. Additionally, the Philippines, as a significant contributor to the nickel market, could capitalise on the growing global demand for electric vehicle (EV) batteries, which heavily rely on nickel.

As discussions between the US and the Philippines progress regarding ways to prevent China from dominating nickel processing in Indonesia, there is potential for the Philippines to leverage its position in the nickel market for economic growth. Despite challenges, Nomura remains cautiously optimistic about the investment prospects in the Philippines, highlighting areas where strategic interventions could enhance the country’s attractiveness to foreign investors.